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Mortgage backed securities (MBS) added a third day to their recent losing streak. YesterdayMBS moved lower in price by almost ½ point resulting in anoticeable increase in consumer borrowing cost after most lenders repriced for the worse. The bigger loser was US Treasuries with the benchmark 10 yr note yield movingover 3.50! In what has been a very consistent pattern over the last few months, as treasuries go so go MBS but to a lesser extent. Let’s all thank the Fed for keeping MBS much more stable with the $1.25trillion they have pledged to spend on MBS in an attempt to keep mortgage rates at historic low levels.

The reason for the sell off yesterday was a much better than expected consumer confidence numbers. Apparently, consumers are becoming more and more optimistic about our economy. The Conference Board’s Consumer Confidence index jumped up 15 points, this is the 2nd month in a row of better than expected confidence numbers. The idea is that a optimistic consumer will spend more money which will get the economy growing and lead to higher corporate profits. So, investors sell their low yielding but safe assets, MBS and treasuries, and move their money to higher yielding but more risky stocks. This is what we refer to as the flow of money, money left fixed income and moved into equities. It is going to be interesting to see whether this is a head fake or if the economy is truly past the bottom and going higher. With unemployment approaching 10%, oil and gas prices moving higher and home prices continuing to fall, I find this hard to believe. We do get another report Friday on how the consumer is feeling with the consumer sentiment numbers.

First out this morning was the weekly Mortgage Bankers’ Association Applications index which tracks the volume of applications for mortgages at mortgage lenders for both purchases and refinances. The report came in very close to expectations indicating weak demand for home purchases despite low mortgage rates and very affordable home prices. However, consumers are taking advantage of the historic low rates with the refinance activity remaining strong.

National Association of Realtors released their existing home sales data which tracks the number of existing homes, condos and co-ops that sold during the prior month. Economists surveyed estimated a yearly pace of 4.65 million but the actual number came in just a touch better at 4.68 million which is 2.9% increase from the prior month. Offsetting this positive news is last month’s numbers being revised worse to 4.55 million from 4.57million. Most economists agree that until housing stabilizes and shows some consistent improvement, it will be difficult for our economy to improve.

At 1 pm, the Treasury Department will hold its 2nd of 3 auctions this week, with today’s offering being $35billion of 5 year Treasury notes. The auction yesterday was received very well with strong foreign/indirect bids but even the good auction couldn’t keep treasury yields from continuing to move higher. This is the law of supply and demand, with more and more supply coming to market, the price has to fall to attract new buyers which increases the yield they pay the end investor. The MBS Commentary blog will have full coverage after the auction is completed. Already this morning, the 2yr note up to the 30 yr bond are all in the red, moving their yields even higher. Currently, the benchmark 10 year treasury note is trading at a yield of 3.566! This auction will definitely have an effect on the treasury and MBS market, so check back once the auction is over which will be around 1:10 est.

Since the release of the economic reports, MBS have lost their appeal and are back in the red once again. Early reports from fellow mortgage professionals are indicating the par 30 year conventional rate to be at 4.75% today. If you have been on the sidelines waiting to refinance, you might want to get on the boat before the refinance boom goes to sea. I do feel it is quite possible for rates to move lower in the next month or two, but if the economy is on an uptrend and continues to improve, then the days of 4.5% mortgages will be gone. Mortgage rates are still fantastic at 4.75%, so do not miss out on this once in a lifetime opportunity.

Victor,
Thanks for the excellent blog. What would you reccommend for someone that's still 90 days out? Should I pay an additional .125 for the 90 day lock, or wait it out a bit and see if rates do decline in the next 90 days?

LOCK! LOCK! LOCK!
Every day I get calls from would be clients wanting to know if rates are going to get lower; or worse, they have HEARD that rates are going to get lower!!!
My standard "No One knows where rates will be...even 5 minutes from now" seems to go unheeded much of the time.
It's always better to lock and try a renegotiation later if rates improve significantly.

One thing I learned by following this blog is NO ONE is going to directly tell you what rates sre going to do because that is impossible.... I learned to watch the phrase... "There is much more room on the upside than there is on the down" That phrase was the reason I locked a few months back... it is a relief to be locked at a great rate and finished with the entire refi process.... The piece of mind having a mortgage below 5% is something that must be experienced to truely understand... I am NO EXPERT... I am one of the regular people like you.... I did not want to miss the boat because I got greedy looking for an additional 1/8 of a point.... Just my thoughts... My thanks to the professionals on this site.... AND Good luck to everyone looking for a mortgage

thanks for the comments everyone. As far as where are rates going, again all we can do is make an educated guess. If you feel the economy is improving and will continue to improve, lock em. If you feel this is a head fake and the economy is experiencing a bear market rally, than rates will go lower again. The question would only be how long until that happens. Over the last 6 months we have seen a pattern develop. Rates have moved to 4.5% or so, stayed there then moved higher and topped out at 4.875%. Stayed there for a while then moved lower once again only to repeat. At some point that trend will end and rates will continue to move higher as the economy improves. I have said many times, if you can lock under 5% that is a good thing. Rates can move lower, but more room above as Bob pointed out.

quick update, we had a pretty successful auction which should be good news for MBS, but the opposite is happening. I guess the looming amount of treasuries to be issued to fund govt spending is weighing heavy on the markets..

Victor, great blog appreciate your insight as always. Looks like the Treasury Auction was a killer for mortgage rates this afternoon. Do you see this as a temporary move or something effecting rates for the next month? Looks like we saw a .75 increase since the auction.

FYI - I just got the worst reprice of the year... Went from 4.75% PAR to 5.25%! For those on the fence; rates will go up much faster than go down and here's the proof. If you are waiting for that magic 4.5% rate, don't hold your breath OR pay the points (just not today).

Melissa, if you have not locked already, you might as well float as long as you can. Are you buying or refinancing? If refinancing you can delay the closing but if buying you may not have a choice. If you have to lock by tomorrow in order to close, lock now but i will warn you it will not be pretty. As i am responding, MBS have just moved to the lows of the day as so have treasuries.

I am buying. I had a great rate locked a few weeks ago and it expired and I didn't lock again. I have to lock by tomorrow I just found out today. Do you think it may be a little better in the morning?
Thanks for the advice!

Melissa, do you feel lucky? Rates now will be about 1/2 worse then this morning. This morning par was 4.75% and now 5.125 to 5.25%.. Hard to imagine them moving higher in the morning but never would have guessed the huge move we had today.

Melissa, rates today are the same as when we closed yesterday after the brutal reprices to the worse. Par is 5.25% today. Laura, i would hold off on locking. Hard to imagine rates moving any higher, so worse case is we move sideways, best case rates improve. But locking now does remove all risk and nothing wrong with a 30 year fixed rate in the low 5's.

Victor, just started reading your blog after yesterdays up tick in rates. We were planning to make an offer on a home on next Monday and list our home if the offer is accepted. Should I wait to lock in a rate if it lowers to 5% or below or wait until we have an accepted offer? Is it worth it to pay for a 60 day lock if available? Wishing we would have moved on our decision 3-10 days ago. We really don't have to do anything right now, we were going to take advantage of the markets. I suppose we will have to sit tight and be patient to see what happens. I know there is no magic decoder ring, but your experience helps. Great blog. Thanks for your insights.

Stig, thanks for reading the blog. Hind sight is 20/20! if your loan is not already locked, floating for now would be the way to go. Now, that can change quickly. Today rates spiked over 5% and i think it is reasonable to think that rates will move lower in the weeks to come but dont think that they will approach rates below 4.5% anytime soon if ever. ONce rates tick under 5%, i would than start to lean toward locking.

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